Not sure I get the question. How do they go bankrupt? Like anyone else: their expenditures exceed their earnings -- or so they say (see the next quote about comprehensive annual financial reports). Among other factors, unemployment is rampant so the tax base is shrinking and with inflation, the cash they *are* getting just doesn't go as far.

In the case of Harrisburg, this was far from unexpected. They've been on the brink of bankruptcy for some time. In fact, the way I understand it, the city was using that as leverage to negotiate with creditors until the state government threatened to withhold funding unless they waited until after the 2012 elections to file. Guess it didn't work heh.

What assets can a city sell off without major impact to those living there?

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Go look up the comprehensive annual financial reports for Harrisburg or any other municipality for that matter. They generally have millions or billions in stocks and other assets that are unaccounted for when balancing the budget. The collective US government (cities, counties, states and their individual municipal corporations) holds an incredible stake in many of the large publicly traded firms.

Of course, rather than release those assets, they'll just cut public services. For instance, Topeka, Kansas has stopped responding to domestic violence cases to save cash. Other cities are dipping into pension funds.

That might happen, but it probably won't make much difference because the subsequent administration would be subject to the same overarching monetary policy that's doomed to failure (i.e. a massive debt machine designed to confiscate wealth).

Michigan city can't pay electric bill, shuts off street lights Unable to pay a $4 million electric bill, Highland Park, Mich. has taken the extreme step to turn off 1,000 street lights, according to an Associated Press report. Deseret News

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Oh how we inch nearer to mass municipal bond failure.

*Edit*

Hey, but there's plenty of cash to make sure Al Qaeda isn't hiding in your trunk:

Tennessee first state to allow TSA highway random search program Tennessee has become the first state in the nation to welcome the federal government’s latest anti-terrorist program: Visible Intermodal Prevention and Response (VIPR). AllGov

In choosing municipal bankruptcy as an alternative to protracted negotiations with creditors on $3 billion in sewer debt, Jefferson County, Ala., officials will start a new round of what is likely to be more negotiations with the same creditors about the same issues.

Chapter 9 of the federal bankruptcy code, which covers municipal bankruptcies, is no panacea. Since governments must continue to function—maintain roads, run the courts and perform other public services—states, counties, cities and other "municipalities" can't be liquidated to pay creditors.